Category Archives: Market Intelligence

The Real Key to Spotting Disruption Before it Happens

A recent post over on the HBR blogs on “the key to spotting disruption before it happens” noted that executives have to look beyond revenue or basic market share data to determine whether or not a would be disruption [which would trigger rapid declines in their core business] is a legitimate threat. This is because, in the early days of a transformation — such as mail to e-mail and digital document delivery, or CD to digital (mp3) album downloads, or polaroid to digital cameras and home printers — market leaders tend not to feel deep pain. It’s only after the not-good-enough transformation, which starts away from the mainstream in a seemingly non-connected market, becomes more than a slowly rising-tide and reaches the tipping point where the big switch begins that a market leader starts to see the impact.

According to the article, the key is to spotting potential disruptions is to find the right metric(s) to measure your business against the seemingly disparate competitor. If your measure falls while the measure for the seemingly disparate business rises, then you may have a disruption. For example, the U.S. Postal Service could have foreseen the problems it faces today if it had measured it’s market share by way of “pieces of communication” and not revenue, as mail volume has sagged 17% since 2006; Digital Equipment Corp. could have seen the end of the mini-computer market had it measured units sold against the rising PC market; and Kodak could have seen the “big switch” coming much earlier had it measured number of pictures “developed” on its platform.

The article has a good point as good metrics can tell you when a big switch might be coming. However, I wouldn’t go so far as to say it’s the key to spotting a disruption.

First of all, the method can yield a false positive. Consider the example of the potential big switch in progress given by the author. Yes, television viewership might be declining while YouTube and other online channel viewership is rising, but this doesn’t mean that television viewership will drop significantly. It might, but not everyone has a computer yet. Not everyone has (sufficiently) high speed. And not all the content people want to watch is online. This last point is key. Furthermore, when you think about it, TV networks are in the content development and distribution business … and now that TV is digital, there’s really no difference between a TV and a computer monitor. As long as networks produce content people want to see, learn from their counterparts in the music industry, and adapt to deliver their content through the channels their viewers want to consume it, TV networks will do just fine.

Secondly, by the time the method identifies a disruption, it could be too late. Markets are evolving faster and faster and a new market can often emerge overnight. Take the “tablet PC” and “digital reader” markets. Over a dozen providers, including some big names like Sony and Toshiba, have been producing numerous offerings for these markets for years, but sales remained relatively flat overall until Apple launched the iPad, which broke both markets open by selling over a Million units in a little over a month. If you didn’t have a competitive product in development before its release, it’s too late.

Thirdly, and most importantly, it doesn’t tell you where to look. If you were producing e-Readers, you wouldn’t be watching the tablet PC market. If you were producing tablet PCs, you wouldn’t be watching the e-Reader market. Either way, if you misclassified the iPad, which crosses both markets, you wouldn’t see your market disappear to Apple literally overnight until it happened.

This brings us to the real key for spotting a disruption before it happens … and that is to define it in-house. Use scenario planning to identify what types of future technologies could shift the market out from under you and keep a watchful eye out for them. Then, if you can, partner to develop or take advantage of the new technologies as they emerge, so you can ride the wave upward as the wave you are currently riding crests, or start working on alternative product offerings to start a new wave. Every product has a life-span. The successful companies recognize this and are working on next generation products that will either replace their current products or complement the next generation products of their competition (that they do not have the in-house expertise to develop themselves). They are ready for the next wave and the “disruption” is just a natural transition from one market cycle to the next.

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Is Sustainability the Current Megatrend?

According to a recent article in the Harvard Business Review on “The Sustainability Imperative”,

over the past 10 years, environmental issues have steadily encroached on businesses’ capacity to create value for customers, shareholders, and other stakeholders. Globalized workforces and supply chains have created environmental pressures and attendant business liabilities. The rise of new world powers, notably China and India, has intensified competition for natural resources (especially oil) and added a geopolitical dimension to sustainability. “Externalities” such as carbon dioxide emissions and water use are fast becoming material – meaning that investors consider them central to a firm’s performance and stakeholders expect companies to share information about them.

Furthermore, these forces are magnified by escalating public and governmental concern about climate change, industrial pollution, food safety, and natural resource depletion, among other issues. Consumers in many countries are seeking out sustainable products and services or leaning on companies to improve the sustainability of traditional ones. Governments are interceding with unprecedented levels of new regulation – from the recent SEC ruling that climate risk is material to investors to the EPA’s mandate that greenhouse gases be regulated as a pollutant.

As a result, managers can no longer afford to ignore sustainability as a central factor in their companies’ long-term competitiveness.

Considering that a megatrend is a great force in societal development that will very likely affect the future in all areas in the next 10-15 years (Gitte Larsen on “why megatrends matter”), and that sustainability affects each and every one of us, it’s pretty easy to see that if sustainability isn’t the current megatrend, it soon will be. Less than 2.5% of the water on the planet is fresh, and two thirds of this is frozen. In recent years, energy crises have arisen in a number of US states, Central Asia, South Africa, Pakistan, and China and current oil reserves will empty within 50 years. Carbon dioxide levels have increased 36% in the past 180 years and is now about 25% higher than historical highs over the last 400,000 years! And this is just the beginning.

Environmental responsibility has pervaded the consumer mindset across the developed countries and is quickly taking root in the mind of the customer in the emerging market … where consumers are tired of smog filled cities, dirty water, and regular rolling black-outs. Consumers want a product that’s green, made with recyclable material in an environmentally friendly process, and produced in a socially responsible manner. Furthermore, they want a product that is high quality and cost effective — proving that sustainability cuts through the business and consumer worlds.

In short, sustainability is the current megatrend and an imperative. So what does this mean to your organization? That’s the subject of a future post.

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Should You Use Seller Side Auctions for Your Commodity Buys?

A recent article over on Industry Week (Not Your Fathers Auction) trumpeted the benefits of Seller Side Auctions (SSAs) for commodity sales over traditional negotiations, indicating that the more open and transparent process they enabled bring with it a number of benefits that include:

  • refocused sales resources on higher margin activitiesan auction reduces the time and direct costs associated with commodity transactions which allows sales teams to focus on custom products and value-added services
  • improved revenue visibility and forecast accuracybilateral contracting standardizes terms and conditions across customers, simplifying revenue visibility and visibility and eliminating the invisible risk created by bilateral contracts with customized, non-standard, terms and conditions
  • reduced renegotiation riskinconsistency leads to errors, which start disputes, renegotiations, and, sometimes, even litigation
  • improved customer relationshipsbuyers and sellers are no longer adversarial, the buyers are competing against other buyers, not the seller … which lays the foundation for a better relationship going forward
  • reduced price barriers and market intelligenceauctions greatly reduce the acquisition cost as well as the cost of market intelligence
  • new customer acquisition and penetration into underserved market segmentsincreased efficiency allows the supplier to serve market segments which might otherwise be too costly to serve

But what about the buyer? What benefits do they get beyond market intelligence (and what their competitors are willing to pay)? The relationships will be more cordial, but if it’s a commodity, the supplier will not be strategic and there is no obvious value from a good relationship. They will get a more efficient process, but they would also get that if they just held their own auction and invited suppliers to participate. So where’s the real value?

From a buyer’s perspective, the real value is quality merchandise at true market cost at great efficiency. If a buyer holds an auction and the only suppliers who participate are those that produce lower quality products and/or those that can only produce small volumes, the buyer might get stuck with lower quality products or having to buy from multiple suppliers, which will increase total cost of ownership (with increased service and warranty costs, logistics costs, and even product costs if the suppliers don’t have the economies of scale). But if their supplier(s) of choice are holding auctions, they can participate in those auctions and obtain the commodity products at true market cost, which is always set by the buying organizations. Furthermore, the buyer doesn’t have to waste her organization’s resources setting up and holding the auction. All she has to do is bid. And if she loses the bid with the first choice supplier, she moves on to the second choice supplier.

It’s an interesting idea, and one that deserves further consideration.

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Emerging Markets Will Disrupt Your Home Markets

An article in the special report on innovation and emerging markets in the April 17th edition of The Economist on the power to disrupt made some very good points on why things will move faster and further this time with emerging markets that deserve to be repeated and discussed because they will, ultimately, disrupt your home markets and the supply chains that serve them.

  1. Senior Management Talent Markets are LiquidGreat management talent can not come from anywhere, but can go to anywhere. And chances are that where ever they go, they’ll have access to highly developed capital markets for merger, acquisition, and expansion.
  2. Emerging Markets are Already Larger Than You ThinkThe emerging-market export machine has engines in almost every industry. ArcelorMittal in Luxembourg is the world’s biggest steel company, Infosys and TCS in India are among the world’s biggest IT companies, Haier in China is the fourth largest manufacturer of home appliances, and ZTE in China is a top-ten mobile handset manufacturer expected to soon be a top-five.
  3. Emerging Markets Offer VolumeDue to the slim profit margins in emerging markets, emerging market companies are obsessed with volume and ways to expand their footprint.
  4. Emerging Markets are Sources of Growth and InnovationNo longer the sweatshops of the world, emerging markets often offer more potential customers and innovation opportunities than home markets.

If you don’t keep a watchful eye out, the end result could be that your top talent defects to a competitor in an emerging market, which aggressively goes after your market share and wins because the innovative new offerings, which can produced more economically using frugal processes and economies of scale, cost less, which will become of increasingly greater importance to the cash-strapped developed economies suffering from stagnating growth.

To maintain your lead, you’ll have to recruit senior talent from emerging talents to revolutionize your supply chain, merge with emerging market companies in local markets, find ways to support even larger volumes at lower costs, and look for innovation the last place you’d expect it.

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